The current word in the housing markets is centred around mortgage applicants likely setting to find it much harder to be approved for loans as the continuing cost of living crisis causes banks to tighten the reins and walk the fine line of caution moving forward.
Current issues with inflation and rising bills are set to lead to lenders having to introduce a set of tighter and more stringent checks on applicants for home loans. This, just days following Santander being the first to announce their change in lending criteria moving forward, should be an indication of how banks are set to follow.
Responsible lending is viewed as vital to the health of the property market and lenders changing their criteria is easily identifiable thanks to the huge increase in living expenses faced by everyone.
Many homeowners are now finding themselves facing a similar position to tenants that didn’t earn enough income to buy but have ended up paying even more in renting costs than a mortgage would cost. Owners also may not be able to re-mortgage to reduce their monthly outgoings as a result of the shortfall in disposable income after their money has been spent on the increased bills.
With interest rate rises also hotly anticipated, many are turning to their banks and brokers to see if a mortgage is a viable option at this point. Those under the banner of self-employment are at considerable risk as they pay themselves lower wages or dividends to keep their taxes low.
Banks are now actively implementing new stringent stress tests on lending with the increasing interest rates, checking if borrowers can afford a standard variable rate plus 3%. Affordability checks and heightened stress tests could severely affect the housing prices, resilient since Brexit, Covid-19 and the invasion of Ukraine, as well as the costs of living in Britain.
As Halifax has reported, average house prices hit a record of £282,753 in March 2022 – a tenth higher than a year previous. This was the biggest annual leap since the offset of the financial crisis.
Mortgage brokers warned that soaring costs of energy bills, tax rises and goods have prompted banks to pull a tight leash on their mortgage affordability tests – resulting in it becoming much harder to borrow as much.
Santander made it tougher for borrowers to meet the lending criteria by telling their brokers it would reflect rises in household bills, National Insurance and taxes. The largest high street banks – such as HSBC, Barclays, Lloyds and NatWest – are considering similar motions, with punitive checks making it more difficult to take out larger loans. Many people stand at risk of being unable to purchase their desired home.